Appendix D: Allowable and Excluded Costs for the Process for the Review of Medical Device Applications

Appendix E: Development of Costs for the Process for the Review of Medical Device Applications

April 12, 2005

The Honorable Richard CheneyPresident of the SenateUnited States SenateWashington , D.C. 20510

Dear Mr. President:

Enclosed is the second annual financial report to Congress required by the Medical Device User Fee and Modernization Act of 2002 (MDUFMA). This report covers fiscal year (FY) 2004, documenting the extent to which the conditions specified in MDUFMA for the continued collection of medical device user fees were met.

The report also presents the user fee revenues and related expenses for FY 2004, and details the amounts carried over at the end of the year that remain available. For FY 2004, FDA collected $27.2 million in user fees, and obligated $23.9 million. Over 65 percent of the fees were spent for staff salaries and benefits, and the remainder went toward increased support and infrastructure for the device review program. This infusion of resources is essential to enabling FDA to meet the performance goals associated with MDUFMA — goals that become increasingly more Challenging each year.

Under current law, the program will end in October unless amendments are made to eliminate a statutory requirement for additional appropriations initially specified for FY 2003 and FY 2004. I urge Congress to modify MDUFMA quickly to assure continuation of this program through FY 2007.

Sincerely,

/s/

Michael O. Leavitt

Enclosure

Identical letters to:

Speaker of the House of Representatives

Chairman and Ranking Minority Member, Committee on Health, Education, Labor, and Pensions, United States Senate

Chairman and Ranking Minority Member, Committee on Energy and Commerce, House of Representatives

Executive Summary

The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) requires the Food and Drug Administration (FDA) to report annually on the financial aspects of its implementation of MDUFMA. Required under MDUFMA, this is the fourth annual financial report to Congress that covers activities for fiscal year (FY) 2006.

MDUFMA, amended by the Medical Device User Fee Stabilization Act of 2005, specifies that three conditions must be satisfied in order for FDA to collect and spend MDUFMA fees.

Within FDA's salaries and expenses appropriation, the amount appropriated for devices and radiological health after FY 2004 must be at least $205,720,000, excluding fees, adjusted for inflation.

The fee amounts that FDA can collect must be specified in the Appropriation Acts.

FDA must spend at least as much from appropriated funds for the review of medical device applications as it spent in FY 2002, adjusted for inflation.

MDUFMA also contains a provision that FDA must spend at least as much on medical device inspections as it spent in FY 2002, increased by 5 percent in each fiscal year.

This report explains how FDA met the four statutory conditions in FY 2006. The report also provides information on user fee collections, expenditures, and carryover balances. In FY 2006, FDA net collections totaled $34 million from fees. FDA obligated $32 million from MDUFMA collections to support FDA's medical device review program. FDA carried forward into FY 2007 a balance of $16 million. About 72 percent of the total expenses for the medical device review program in FY 2006 went for personnel salary and benefit costs. The reminder (about 28 percent of the total expenses) was primarily the operating and the infrastructure costs necessary to support the medical device review program.

MDUFMA fees, with the increased appropriations from Congress enabled FDA to dedicate 191 more full-time equivalents (FTEs) to the medical device review program in FY 2006 than the FTEs dedicated in FY 2002. An additional 73 contractor staff-years were also dedicated to the device review in FY 2006 compared with FY 2002. These resources have enabled FDA to achieve the performance goals associated with the enactment of MDUFMA, and strengthen FDA's medical device review program. FDA looks forward to continued strengthening of the medical device review program in FY 2007.

The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) requires the Food and Drug Administration (FDA) to report annually on the financial aspects of its implementation. This is FDA's report for fiscal year (FY) 2004.

MDUFMA specifies that three conditions must be satisfied each year in order for FDA to collect and spend MDUFMA fees:

Within FDA's salaries and expenses appropriation, the amount appropriated for devices and radiological products must be at least $205,720,000 (excluding fees and adjusted for inflation), and any shortfalls in appropriations must be made up by October 1, 2005.

Fee revenues collected must be specified in Appropriation Acts.

FDA must spend at least as much from appropriated funds for the review of medical device applications as it spent in FY 2002, adjusted for inflation.

This report describes the extent to which these specific statutory conditions or "triggers" were met in FY 2004. The report also provides information on the user fee revenues and expenditures in FY 2004, and on the carryover balance.

In FY 2004, FDA collected $27.2 million in fees. Cumulative collections since the beginning of the program were $4.8 million less than the adjusted revenue amounts set in statute for FY 2003 and FY 2004. The shortfall is due to fewer applications that paid the highest fees, fewer supplements that paid the higher supplement fee, and to a larger number of applications than expected that qualified for exemption from fees.

In FY 2004, FDA obligated $23.9 million from MDUFMA revenues to support FDA's medical device review program, and carried a balance of $10.1 million forward for use in FY 2005. Over 65 percent of the funds spent in FY 2004 went for personnel salary and benefit costs. The balance was primarily operating costs and infrastructure necessary to support the staff. During FY 2005, FDA expects to spend user fees to pay for about 150 more staff to conduct and support medical device reviews, positioning the agency to be able to meet the challenging performance goals associated with this program in FY 2005 and beyond.

The MDUFMA program will end in October, however, unless MDUFMA is modified as discussed in the Management Challenges section of this report. The continuation of this program is in the best interests of the American public and timely action is essential.